Anatomy of Technology in the Firm

Abstract

We collect detailed data on the technologies used in a comprehensive set of business functions in a representative sample of firms in Vietnam, Senegal, and the Brazilian state of Ceará, and construct measures of technology sophistication at the business function and firm levels. There is a large variance of sophistication across firms, but we find that the variance of technology sophistication across the business functions of a firm (within-firm variance) is 2.8 times larger. We develop a model of technology adoption with heterogeneity in adoption costs across business functions and with non-homothetic production that induces heterogeneity in the marginal value of technology sophistication across functions. The model predicts a stable cross-firm relationship between sophistication in the business function and firm-level technology that we call the technology curve. We find that the slopes of technology curves differ greatly across business functions and that curves account for one third of within-firm variance in sophistication. A development accounting exercise shows that cross-firm variation in sophistication measures accounts for thirty percent of cross-firm differences in productivity